Deck 2: The Measurement and Structure of the Canadian Economy

Question 1

GDP differs from GNP because

A) GDP = GNP - net factor payments from abroad.
B) GNP = GDP - net factor payments from abroad.
C) GDP = GNP - capital consumption allowances.
D) GNP = GDP - capital consumption allowances.

Answer 1

A

Question 2

Beautiful Boating purchases five new boats at $200 thousand each to rent to vacationing fishermen. The firm sells its old boats to the public for $500 thousand. The net increase in GDP of these transactions was

A) $500,000.
B) $1,000,000.
C) $1,250,000.
D) $1,500,000.

Answer 2

B

Question 3

Countries A and B have the same GDP. In country A, people eat often in restaurants, but in country B people eat more often at home. Therefore,

A) economic activities are underestimated in country A.
B) economic activities are overestimated in country B.
C) GDP represents accurate measure of economic activities in both countries.
D) GDP is underestimated in country B.

Answer 3

D

Question 4

Because government services are not sold in markets,

A) they are excluded from measurements of GDP.
B) the government tries to estimate their market value and uses this to measure the government's contribution to GDP.
C) they are valued at their cost of production.
D) taxes are used to value their contribution.

Question 5

One problem with using market values to measure GDP is that

A) you cannot compare completely heterogeneous goods by using their dollar values.
B) some useful goods and services are not sold in markets.
C) prices for some goods change every year.
D) market values of export goods are usually priced in foreign currencies.

Question 6

The A company collects bushels of wild berries, which it sells for $2 million to the B company to be made into jam. The B company's wild berry jam is sold for a total of $6 million. What is the value added of company B?

A) $2 million
B) $4 million
C) $6 million
D) $8 million

Question 7

The value added of a producer is the

A) total amount for which all its products sell minus its change in inventories.
B) value of its total sales once externalities are accounted for.
C) value of its output minus the value of the inputs it purchases from other producers.
D) quality-adjusted amount of its total sales less any commissions paid.

Question 8

Underground activities in the economy are

A) excluded from measurements of the GDP because they are not beneficial to the nation.
B) excluded from the measurements of GDP because there is no way of measuring them.
C) included in GDP if legal and excluded from GDP if illegal.
D) estimated and included in measurements of GDP.

Question 9

The fundamental identity of national income accounting tells us that

A) total production = total income = total expenditure.
B) total production = total income - total expenditure.
C) total production = total income + total expenditure.
D) total production < total income + total expenditure.

Question 10

The three approaches to measuring economic activity are the

A) cost, income, and expenditure approaches.
B) product, income, and expenditure approaches.
C) consumer, business, and government approaches.
D) private, public, and international approaches.

Question 11

Intermediate goods are

A) capital goods, which are used up in the production of other goods but were produced in earlier periods.
B) final goods that remain in inventories.
C) goods that are used up in the production of other goods in the same period that they were produced.
D) either capital goods or inventories.

Question 12

The Compagnie Naturelie sells mounted butterflies, using butterfly bait it buys from another firm for $20 thousand. It pays its workers $35 thousand, pays $1 thousand in taxes, and has profits of $3 thousand. What is its value added?

A) $3 thousand
B) $19 thousand
C) $39 thousand
D) $59 thousand

Question 13

Capital goods are

A) not counted in the GDP as final goods.
B) not used to produce other goods.
C) used up in the same period that they are produced.
D) goods used to produce other goods.

Question 14

The measurement of GDP includes

A) nonmarket goods such as homemaking and child-rearing.
B) the benefits of clean air and water.
C) estimated values of activity in the underground economy.
D) purchases and sales of goods produced in previous periods.

Question 15

The A company collects bushels of wild berries, which it sells for $2 million to the B company to be made into jam. The B company's wild berry jam is sold for a total of $6 million. What is the total contribution to the country's GDP from companies A and B?

A) $2 million
B) $4 million
C) $6 million
D) $8 million

Question 16

The national income accounts

A) are an accounting framework used in measuring households income.
B) are an accounting framework used in measuring firms income.
C) are an accounting framework used in measuring government income.
D) are an accounting framework used in measuring current economic activity.

Question 17

Which of the following statements is true?

A) Capital goods are a type of intermediate good.
B) Capital goods are final goods because they are not used up during a given year.
C) Capital goods are produced in the same year as the related final goods, whereas intermediate goods are produced in different years.
D) Capital goods are produced in one year and final goods are produced over a period of more than one year.

Question 18

Which of the following statements is true?

A) Total expenditures and total income are the same measures of economic activity.
B) The product , income , and expenditure approaches must generate the same answer to the measure of economic activity.
C) The fundamental identity of national income accounting states that the GDP measured by the expenditure, income, and product approaches must be identical.
D) All of the above.

Question 19

Inventories are

A) included in the measurement of capital goods.
B) included in the measurements of intermediate goods.
C) fully included in annual measurements of GDP.
D) included in measurements of GDP only if they have changed from the preceding year.

Question 20

Which of the following statements is true?

A) GDP calculated by income approach is greater than GDP calculated by expenditure approach.
B) GDP calculated by product approach is greater than GDP calculated by expenditure approach.
C) GDP calculated by expenditure approach is greater than GDP calculated by product approach.
D) All three approaches for calculating GDP will result in the same value for GDP.

Question 21

In the expenditure approach to GDP, which of the following would be excluded from measurements of GDP?

A) government payments for goods produced by foreign firms
B) government payments for goods produced by firms owned by state or local governments
C) government payments for welfare
D) All government payments are included in GDP.

Question 22

National saving equals private saving plus government saving, which in turns equals

A) C + S + T.
B) GDP + C + G.
C) GDP + NFP.
D) GDP + NFP - C - G.

Question 23

In 2001 private saving in the country of Polity was $112 billion, investment was $114.5 billion, and the current account balance was -$26.5 billion. From the uses-of-saving identity, how much was the government of Polity saving?

A) -$24 billion
B) -$39 billion
C) $24 billion
D) $39 billion

Question 24

If GDP in an economy is greater than its GNP, it means that

A) net factor payment from abroad is positive.
B) net factor payment from abroad is negative.
C) net factor payment from abroad is zero.
D) there is a measurement error.

Question 25

Which of the following statements is true?

A) GDP and GNP are always the same because the net factor payments from abroad is always zero.
B) GDP is always greater than GNP because the net factor payments from abroad is always negative.
C) GNP is always greater than GDP because the net factor payments from abroad is always positive.
D) GDP may be greater, equal, or smaller than GNP because the net factor payments from abroad may be negative, zero, or positive.

Question 26

The income-expenditure identity says that

A) Y = C + S + G.
B) Y = C + I = G.
C) Y = C + I + G + NX.
D) Y = C + I + G + NX = CA.

Question 27

If a Canadian construction company built a road in Kuwait, this activity would be

A) excluded from Canadian GNP.
B) fully included in Canadian GDP.
C) included in Canadian GNP only for that portion that was attributable to Canadian capital and labour.
D) included in Canadian GDP but not Canadian GNP.

Question 28

Nations such as Egypt and Turkey have wide differences between GNP and GDP because both countries

A) have a high level of imports and exports relative to GNP.
B) have a large portion of their GNP produced by multinational corporations.
C) have a large number of citizens working abroad.
D) purchase large amounts of military wares from other countries.

Question 29

Assume that the municipal government of Winnipeg, Manitoba, has taxes of $1000, transfer payments of $400, and interest payments on the government debt of $100. If government purchases of goods and services are $300,

A) government saving will be $100.
B) government saving will be $500.
C) government saving will be $200.
D) the government will not have any saving.

Question 30

In using the expenditure approach to GNP, consumption includes

A) all final and intermediate goods consumed by domestic households and firms.
B) all final and intermediate goods consumed by domestic households produced at home, but not those produced abroad.
C) all final goods consumed by domestic households produced at home, but not those produced abroad.
D) all final goods consumed by domestic households produced at home and abroad.

Question 31

The government budget surplus equals

A) government purchases plus transfers.
B) government receipts minus outlays.
C) government outlays minus receipts.
D) government purchases minus transfers.

Question 32

In using the expenditure approach to GDP, consumption

A) includes consumer durables, semi-durable goods, nondurable goods, and services.
B) includes houses, consumer durables, nondurable goods, and services.
C) includes residential investment, nondurable goods, and services.
D) excludes all purchases by business firms.

Question 33

Private saving is defined as being equal to

A) private disposable income minus consumption.
B) net national product minus consumption.
C) private disposable income minus consumption plus interest.
D) private disposable income minus consumption plus interest plus transfer payments.

Question 34

The uses-of-saving identity shows that if the government budget deficit rises, then one of the following must happen:

A) private saving must rise, investment must fall, and/or the current account must fall.
B) private saving must rise, investment must fall, and/or the current account must rise.
C) private saving must rise, investment must rise, and/or the current account must fall.
D) private saving must rise, investment must rise, and/or the current account must rise.

Question 35

Monica grows coconuts and catches fish. Last year she harvested 1500 coconuts and 600 fish. She values one fish as worth three coconuts. She gave Rachel 300 coconuts and 100 fish for helping her to harvest coconuts and catch fish, all of which were consumed by Rachel. Monica set aside 200 fish to help with next year's harvest. In terms of fish, Monica's income would equal

A) 700 fish.
B) 900 fish.
C) 1100 fish.
D) 2700 fish.

Question 36

Net national income is equal to

A) GDP minus depreciation.
B) GDP minus depreciation and indirect business taxes.
C) net domestic product minus depreciation and indirect business taxes.
D) net domestic product minus indirect business taxes and employer contributions to Unemployment Insurance.

Question 37

Suppose Toyota built a new automobile plant in Mexico using Japanese management practices, Canadian capital, and Mexican labour. Which of the following statements would be true?

A) The portion of output contributed by Canadian capital would be included in Canadian GDP.
B) The portion of output contributed by Japanese management would be included in both Japanese GNP and GDP.
C) The portion of output contributed by Japanese management would be included in neither Japanese GNP nor GDP.
D) The portion of output contributed by Mexican labour would be included in both Mexican GNP and GDP.

Question 38

Private disposable income equals

A) GNP - taxes + transfers + interest.
B) NNP - taxes + transfers + interest.
C) national income - taxes + transfers + interest.
D) national income - taxes - transfers

Question 39

The uses-of-saving identity says that an economy's private saving is used for

A) investment, interest expenses, and the government budget deficit.
B) investment, the government budget deficit, and the current account.
C) investment, interest expenses, the government budget deficit, and the current account.
D) investment, interest expenses, the government budget deficit, transfer payments, and the current account.

Question 40

Assume that the municipal government of Lethbridge, Alberta, has taxes of $500, government purchases of $350, transfer payments of $150, and interest expenses of $50. The government budget would

A) show a surplus of $100.
B) show a surplus of $50.
C) be in balance with neither a surplus nor a deficit.
D) show a deficit of $50.

Question 41

If real GDP falls by 1 percent, but the nominal GDP rises by 5 percent, then we must conclude that

A) the price level rises by 5 percent.
B) the price level falls by 1 percent.
C) the price level rises by 6 percent.
D) the price level falls by 4 percent.

Question 42

Say that nominal GDP in 1990 was $1,015.5 billion, and in 2000 it was $2,732.0 billion. The GDP deflator is 42.0 for 1990 and 85.7 for 2000, where 1992 is the base year. Calculate the percent change in real GDP in the decade from 1990 and 2000. Round off to the nearest percentage point.

A) 32%
B) 104%
C) 132%
D) 169%

Question 43

Which of the following statements is true?

A) The advantage of variable-weight indexes is that they reflect the prices of the basket of goods that people purchased in the base year.
B) The disadvantage of variable-weight indexes is that they reflect the prices of the basket of goods that people actually purchased in the current year.
C) The advantage of variable-weight indexes is that they provide better measures of inflation than do fixed-weight indexes.
D) The disadvantage of variable-weight indexes is that the current basket may contain many goods that did not exist or were of different quality in the base year.

Question 44

A fixed-weight price index

A) equals the value of current output at current prices divided by the value of current output at base-year prices.
B) equals the value of a fixed basket at current prices divided by the value of a fixed basket at base-year prices.
C) is used to calculate the GDP deflator.
D) is misleading because it cannot distinguish between nominal and real measures.

Question 45

Saving is a ________ variable, and wealth is a ________ variable.

A) stock; flow
B) stock; stock
C) flow; flow
D) flow; stock

Question 46

A variable-weight price index

A) equals the value of current output at current prices divided by the value of current output at base-year prices.
B) equals the value of a fixed basket at current prices divided by the value of a fixed basket at base-year prices.
C) is used in the consumer price index.
D) is misleading because it cannot distinguish between nominal and real measures.

Question 47

The country of Old Jersey produces milk and butter, and it has published the following macroeconomic data, where quantities are in gallons and prices are dollars per gallon: $$\begin{array} { l c c c c } & 2001 & &{ 2002 } \\\hline \text { Good } & \text { Quantity } & \text { Price } & \text { Quantity } & \text { Price } \\\hline \text { Milk } & 500 & \$ 2 & 900 & \$ 3 \\\text { Butter } & 2000 & \$ 1 & 3000 & \$ 2 \\\hline\end{array}$$ Between 2001 and 2002, the percent change in the price level as measured by a fixed-weight index that uses production in 2001 as the fixed "basket" of goods was

A) 60.00%.
B) 81.25%.
C) 83.33%.
D) 123.08%.

Question 48

Say nominal GDP was $603.9 billion in 2001 and $572.3 billion in 2000, while the GDP deflator was 121.1 in 2001 and 117.7 in 2000. What was the growth rate of real GDP between 2000 and 2001?

A) 5.5%
B) 2.9%
C) 2.6%
D) 1.0%

Question 49

In 2001 national saving in the country of Polity was $85 billion, investment was $112 billion, and private saving was $114 billion. How much was the current account balance?

A) $35 billion
B) $27 billion
C) -$27 billion
D) -$35 billion

Question 50

Measuring GDP in nominal terms

A) is the most effective method because it accurately measures how an economy's physical production has changed over time.
B) is unreliable because the quality of goods changes over time.
C) is the market value of an economy's final output using the market prices of a given base year.
D) does not tell us how an economy's physical production has changed over time.

Question 51

If the price index was 100 in 1991 and 120 in 2001, and nominal GDP was $360 billion in 1991 and $480 billion in 2001, then the value of 2001 GDP in terms of 1991 dollars would be

A) $300 billion.
B) $384 billion.
C) $400 billion.
D) $424 billion.

Question 52

Use the following information to answer this question about the country of Polity: $$\begin{array} { l c c c c } & 2000 & &{ 2001 } \\\hline \text { Good } & \text { Quantity } & \text { Price } & \text { Quantity } & \text { Price } \\\hline \text { Guns } & 4000 & \$ 4 & 4500 & \$ 6 \\\text { Butter } & 5000 & \$ 3 & 5200 & \$ 2 \\\hline\end{array}$$ Using a fixed-weight price index with 1998 as the base year, what is the percent change in real output from 2000 to 2001?

A) 8%
B) 10%
C) 12%
D) 15%

Question 53

The country of Old Jersey produces milk and butter, and it has published the following macroeconomic data, where quantities are in gallons and prices are dollars per gallon: $$\begin{array} { l c c c c } & 2000 & & { 2001 } \\\hline \text { Good } & \text { Quantity } & \text { Price } & \text { Quantity } & \text { Price } \\\hline \text { Milk } & 500 & \$ 2 & 900 & \$ 3 \\\text { Butter } & 2000 & \$ 1 & 3000 & \$ 2 \\\hline\end{array}$$ Between 2000 and 2001 real GDP grew by how much, using a variable-weight price index?

A) 37.5%
B) 60.05%
C) 83.3%
D) 190.0%

Question 54

Nominal personal consumption expenditures in Canada were $1,72.4 billion in 1980 and rose to $399.3 billion in 1990. The implicit price deflator for personal consumption expenditures is 67 for 1980 and 118.6 for 1990, where 1986 is the base year. Calculate the percent change in real personal consumption expenditures (rounded to the nearest percentage point) in the decade.

A) 31%
B) 61%
C) 114%
D) 133%

Question 55

If nominal GDP for 2000 is $6400 billion and real GDP for 2001 is $6720 billion (in 2000 dollars), then the growth rate of real GDP is

A) 0%.
B) 0.5%.
C) 5%.
D) 50%.

Question 56

The country of Old Jersey produces milk and butter, and it has published the following macroeconomic data, where quantities are in gallons and prices are dollars per gallon: $$\begin{array} { l c c c c } & 2000 & &{ 2001 } \\\hline \text { Good } & \text { Quantity } & \text { Price } & \text { Quantity } & \text { Price } \\\hline \text { Milk } & 500 & \$ 2 & 900 & \$ 3 \\\text { Butter } & 2000 & \$ 1 & 3000 & \$ 2 \\\hline\end{array}$$ Between 2000 and 2001 nominal GDP grew by

A) 60.0%.
B) 65.5%.
C) 83.3%.
D) 190.0%.

Question 57

If a country runs a current account ________, it means that its national saving is ________ than investment.

A) deficit, greater
B) deficit, less
C) surplus, greater
D) balance, less

Question 58

Investment in the United States is greater than the national saving. This implies that

A) the current account is negative.
B) the current account is positive.
C) the current account is zero.
D) firms are very productive.

Question 59

The country of Old Jersey produces milk and butter, and it has published the following macroeconomic data, where quantities are in gallons and prices are dollars per gallon: $$\begin{array} { l c r c c } & 2000 & & { 2001 } \\\hline \text { Good } & \text { Quantity } & \text { Price } & \text { Quantity } & \text { Price } \\\hline \text { Milk } & 500 & \$ 2 & 900 & \$ 3 \\\text { Butter } & 2000 & \$ 1 & 3000 & \$ 2 \\\hline\end{array}$$ Between 2000 and 2001, the percent change in the price level as measured by a variable-weight price index was

A) 60.00%.
B) 81.25%.
C) 83.33%.
D) 123.08%.

Question 60

Canada's current account has recently been negative. This means that

A) investment is greater than saving in Canada
B) saving is greater than investment in Canada.
C) Canadian trade partners also have current account deficit.
D) interest rate is higher in Canada compared to the US.

Question 61

You are given information on the consumer price index (CPI), where the values given are those for December 31 of each year. $$\begin{array} { c c } \text { Year } & \text { CPI } \\\hline 1997 & 126.1 \\1998 & 133.8 \\1999 & 137.9 \\2000 & 141.9 \\2001 & 145.8\end{array}$$ In which year was the inflation rate the highest?

A) 1998
B) 1999
C) 2000
D) 2001

Question 62

The expected real interest rate 7 is equal to

A) nominal interest rate minus inflation rate.
B) nominal interest rate minus expected inflation rate.
C) expected nominal interest rate minus inflation rate.
D) nominal interest rate plus expected inflation rate.

Question 63

What is the difference between nominal and real economic variables? Why do economists tend to concentrate on changes in real magnitudes?

Question 64

By Marks buys a one-year German government bond (called a bund) for $400. He receives principal and interest totaling $436 one year later. During the year the CPI rose from 150 to 162, but he had thought the CPI would be at 159 by the end of the year. By Marks had expected the real interest rate to be ________, but it actually turned out to be ________.

A) 8%; 1%
B) 6%; 3%
C) 3%; 1%
D) 1%; 3%

Question 65

Explain why in agricultural countries the official GDP are often underestimated.

Question 66

The consumer price index (CPI) is 311.1 for 2002 when using 1975 as the base year (1975 = 100). Now suppose we switch and use 2002 as the base year (2002 = 100). What is the CPI for 1975 with the new base year?

A) 20.2
B) 32.1
C) 48.4
D) 56.2

Question 67

By Marks buys a one-year German government bond (called a bund) for $400. He receives principal and interest totalling $436 one year later. During the year the CPI rose from 150 to 162. The nominal interest rate on the bond was ________, and the real interest rate was ________.

A) 9%; 1%
B) 9%; -1%
C) 36%; 24%
D) 36%; 12%

Question 68

GDP deflator is

A) a price index that measures the overall level of prices of goods and services included in GDP.
B) a price index that measures the overall level of prices of goods and services included in household baskets.
C) obtained by dividing real GDP over nominal GDP.
D) obtained by measuring the price of goods and services in a base year.

Question 69

The real interest rate is equal to

A) nominal interest rate + inflation rate.
B) nominal interest rate - inflation rate.
C) nominal interest rate / inflation rate.
D) nominal interest rate × inflation rate.

Question 70

What is the main conceptual difference between GDP and GNP? How different are GDP and GNP for Canada? For countries with many citizens who work abroad?

Question 71

In the country of Kwaki, people produce canoes, fish for salmon, and grow corn. In 2002 they produced 5000 canoes using labour and natural materials only, but sold only 4000, as the economy entered a recession. The cost of producing each canoe was $1000, but the ones that sold were priced at $1250. They fished $30 million worth of salmon. They used $3 million of the salmon as fertilizer for corn. They grew and ate $55 million of corn. What was Kwaki's GDP in 2002?

Question 72

For 2002 Kwakian economy had the following nominal quantities (in billions of dollars) and price indexes (1997 = 100) for each category of expenditure: a. Calculate the real quantity for each category (to one decimal point).
b. Calculate nominal and real GDP.
c. Find the implicit price deflator (1997 = 100).

Question 73

Which of the following statement is false?

A) Nominal interest rate can be either positive, zero, or negative.
B) The expected real interest rate can be either positive, zero, or negative.
C) The expected real interest rate is the correct interest rate to use for studying people's decisions about how much to borrow or lend.
D) Nominal interest rate must exceed the expected real interest rate as long as there is a positive expected inflation rate.

Question 74

Citizens of the country of Heehaw produce hay and provide entertainment services (banjo playing). In 1998 they produced $15 million worth of hay, with $11 million consumed domestically and the other $4 million sold to neighbouring countries. They provided $7 million worth of banjo-playing services, $5 million in Heehaw and $2 million in neighbouring countries. They purchased $6 million worth of soda pop from neighbouring countries. Calculate the magnitudes of GNP, GDP, net factor payments from abroad, net exports, and the current account balance.

Question 75

Pete the Pizza Man produced $87 thousand worth of pizzas in the past year. He paid $39 thousand to employees, paid $11 thousand for vegetables and other ingredients, and paid $5 thousand in taxes. He began the year with ingredient inventories valued at $1 thousand, and ended the year with inventories valued at $2 thousand. What was Pete's (and his employees') total contribution to GDP this year?

Question 76

Carl's Computer Centre sells computers to business firms. Businesses then use the computers to produce other goods and services. Over the past year, sales representatives were paid $3.5 million, $0.5 million went for taxes, $0.5 million was profit for Carl, and $10 million was paid for computers at the wholesale level. What was the firm's total contribution to GDP?

Question 77

The country of Myrule has produced the following quantity of gauges and potatoes, with the price of each listed in dollar terms: a. Using a fixed-weight price index, with 2001 as the base year, what are the price indexes for 2001 and 2002? What is the inflation rate using this index? What is the percent change in real output using this index?
b. Using a variable-weight price index, with 2001 as the base year, what are the price indexes for 2001 and 2002. What is the inflation rate using this index? What is the percent change in real output using this index?

Question 78

If the price index last year was 1.0 and today it is 1.4, what is the inflation rate over this period?

A) -4%
B) 1.4%
C) 4%
D) 40%

Question 79

The consumer price index is 132 in 2004 and 112 in 2003 when the base year is 1997. The 2004 annual inflation rate, using 2003 as a base year, is

A) 17.8 percent.
B) 20 percent.
C) 12 percent.
D) unknown, as there is not sufficient information.

Question 80

On January 1, 2001, the GDP deflator for Old York was 300, and on January 1, 2003, the GDP deflator had risen to 330.75. Based on this information, the annual average inflation rate for the two years was

A) 5%.
B) 5.125%.
C) 10%.
D) 10.25%.